Mackay Permanent Building Society Limited and Australian Securities and Investments Commission and Anor

[2005] AATA 1176

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2005] AATA 1176

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No Q2005/154

GENERAL ADMINISTRATIVE  DIVISION		)
Re		MACKAY PERMANENT BUILDING SOCIETY LIMITED

Applicant

And AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Respondent

AndCREDIT UNION SERVICES CORPORATION AUSTRALIA LIMITED

Party Joined

DECISION

Tribunal Deputy President Don Muller

Date29 November 2005

PlaceBrisbane

Decision The Tribunal affirms the decision under review.

................SIGNED........................

D.W. MULLER

DEPUTY PRESIDENT

Administrative

Appeals

Tribunal

 

CATCHWORDS

CORPORATIONS – approval of purpose to use information from members’ register of a credit union to inform the members about a takeover proposal – decisions affirmed

Corporations Act 2001: ss173, 177

Corporations Regulations 2001: r.12.8.06(4)

Banking Act 1959: s.66

REASONS FOR DECISION

Deputy President Don Muller        

1.      Mackay Permanent Building Society Limited (Mackay) seeks to takeover/merge with Capricornia Credit Union Limited (Capricornia).  For this purpose it seeks to obtain and use a copy of the Register of Members of Capricornia to enable it to make direct contact with the members.

2.      The Board of Capricornia has rejected Mackay’s proposal relating to takeover or merger.  It has also resisted the attempt by Mackay to obtain a copy of the Register of Members of Capricornia.

3. The Corporations Act allows any person full access to a company’s register of members, provided that the body corporate is not a building society or credit union.

4.      The general rule relating to access to a company’s register of members is modified in the case of building societies or credit unions because the members of entities such as building societies or credit unions hold shares which entitle them to use the financial services provided by the credit union or society.  The services provided to the members are exclusive to those members.  That is, the members of the mutual associations are the customers of the same.  Customer lists of any business are usually regarded as sensitive commercial information.

5.      To gain access to the members’ register of Capricornia, Mackay had to submit to ASIC a list of purposes for which access was sought and then to have those purposes approved by ASIC.

6.      These applications for review arise out of an application by Mackay to ASIC for approval by ASIC of five purposes for which Mackay seeks access to the Register of Members’ shares of Capricornia.  Mackay wishes to inform Capricornia’s members about the proposal by Mackay to “merge”  with Capricornia and to facilitate a course of conduct by the members of Capricornia which would have the effect of over-riding the wishes of the Board of Capricornia.

7.      ASIC approved four of the five purposes proposed by Mackay and declined to approve the other purpose.

8.      Mackay seeks a review by the Tribunal of ASIC’s decision to decline to approve one of the five purposes.

9.      Capricornia seeks a review by the Tribunal of ASIC’s decision to approve of four of Mackay’s five purposes.

10.     The Tribunal exercised its discretion to order that Credit Union Services Corporation Australia Limited (CUSCAL) be made a party to these proceedings.

11.     The Tribunal ordered, by consent of the parties, that these matters be heard together.

12.     At the hearing Mackay was represented by Mr. Bickford of counsel, Capricornia by Mr. Martin SC, Cuscal by Ms. Collins of counsel and ASIC by Mr. Derrington SC.

13.     The evidence placed before the Tribunal consisted of an “Agreed Bundle of Documents” plus an affidavit of James Kristen Peterson, former solicitor for Mackay.  There was no oral evidence called, nor any cross-examination of Mr. Peterson.

14.     I make the following findings of fact, based on the above mentioned material:

(a)Mackay is a public company limited by shares and organised on the standard basis.  It operates on the principle of “one share one vote”.

(b)Capricornia is a public company limited by shares organised on the basis of recognised principles of mutuality, contained in the preamble to the Constitution of Capricornia.  It is owned by its members and operates on the principle of “one member, one vote”.

(c)On 29 June 2004, representatives of Mackay met with the members of the Board of Capricornia for the purpose of submitting a proposal for the merger of Capricornia with Mackay.  Mackay handed to Capricornia’s representatives a letter from Mackay dated 29 June 2004, with the merger proposal attached.

(d)In late July 2004, Terry O’Dwyer, accountant for Capricornia telephoned Mr. Peterson, solicitor for Mackay, to arrange a meeting to discuss the merger proposal.

(e)Mr. Peterson and Mr. O’Dwyer subsequently met on 5 August 2004.  At that meeting Mr. O’Dwyer told Mr. Peterson that he was instructed to convey to Mackay that the merger proposal was not supported by the Board of Capricornia and that any proposal not supported by the Board would be “impossible” and should not be attempted by Mackay.

(f)By a letter dated 5 August 2004, the Board of Capricornia informed Mackay that the Board of Capricornia had no interest in the proposal on the basis that it would not be in the best interests of Capricornia’s members, in their view, and noted that Mackay would be sued for recovery of costs should it “initiate an action which is without merit and not practically capable of completion”.

(g)On 19 October 2004, the solicitors for Mackay applied to ASIC for an approval, pursuant to subsection 173(3B)(b)(ii) of the Corporations Act 2001 (the Act), as inserted by subregulation 12.8.06(4) of the Corporations Regulations 2001 (the Regulations), of the purposes for which Mackay sought a copy of the members’ register of Capricornia.  (The first Application).

(h)Mackay sought approval of the following purposes.   (Annexure “A” of the first Application):

“APPROVED PURPOSE – SUBSECTION 173(3B)

To communicate (in writing, by telephone or by public forum) with the members (members) of Capricornia Credit Union Limited (Capricornia) for the sole purpose of providing material and other information to them:-

(a)about the content (and consequences for them) of a proposal (proposal) to merge Capricornia with Mackay Permanent Building Society (Mackay);

(b)to assist them consider and understand the proposal;

(c)to assist or facilitate convening a meeting of members to consider, and if thought proper pass, resolutions:

(i)giving directions to Capricornia’s board in relation to the proposal;  and/or

(ii)changing the composition of Capricornia’s board so that a majority of its directors (at least) are prepared to give effect to the directions of the members (as set out in any resolution passed by members) with regard to the proposal

and the appointment of proxies to vote at such a meeting on behalf of members.

To give effect to this purpose, the steps taken would include (but would not be limited to) sending each member a copy of the document set out as annexure C of this letter.”

(i)Mackay’s application also stated the following relevant matters:

(i)That Mackay’s merger proposal was made on the basis that it was bona fide and in the best interests of Capricornia’s members;

(ii)That in order to limit any inconvenience or costs associated with putting a merger proposal to Capricornia’s members, Mackay would pay its own costs in relation to communicating with those members, and Mackay would consider contributing to any reasonable costs associated with the requisitioning of a meeting of Capricornia’s members to consider the proposal to merge, so long as agreement could be reached as to the content of the communication to be made to the members in relation to that meeting;

(iii)That Mackay undertook that it would not use the Members Register of Capricornia for any purpose other than the purposes detailed in Annexure “A” of their Application;

(iv)That Mackay undertook to destroy any copies of the Members Register in the event that Capricornia’s members voted against the merger proposal;

(v)That Mackay would take all steps necessary to preserve the confidentiality of the information in the Members Register of Capricornia.

(j)On 31 January 2005, ASIC wrote to Capricornia and advised that ASIC proposed to approve the purposes set out in Annexure “A” of Mackay’s first Application, subject to submissions from Capricornia.

(k)On 31 January 2005, ASIC wrote to Mackay’s solicitors and advised that ASIC had allowed Capricornia the opportunity of making written submissions on the approval of purpose Application, up to 5.00pm on Wednesday, 16 February 2005.

(l)Capricornia sought from ASIC a copy of the submissions made on behalf of Mackay in support of its application and a copy of ASIC’s reasons for its proposed approval.  ASIC did not supply any material in response to the requests from Capricornia.

(m)By a letter of 2 February 2005, Mackay gave notice to Capricornia that its offer made on 29 June 2004 was withdrawn.

(n)On 16 February 2005, ASIC received written submissions from Capricornia, submitting as follows:

(i)In relation to subparagraph (c)(i) in Annexure “A” Capricornia contended that a resolution of the members in general meeting that purports to instruct the directors as to the manner in which the directors should exercise their powers was unlawful;

(ii)Capricornia referred to a Clause in its Constitution which, it submitted, vested in the Board the power to manage the credit union’s business and to exercise all of the powers of the credit union, except any powers that the Act or the Constitution expressly allocated to the general meeting;

(iii)Capricornia referred to case law which it submitted stood as authority for the proposition that when a resolution cannot lawfully be effectuated at a general meeting the directors are entitled to decline to act on the resolution;  and

(iv)Accordingly, Capricornia contended that the resolutions contemplated by subparagraph (c)(i) in Annexure “A” were unlawful and that ASIC should not approve a purpose which involved a meeting of Capricornia’s members being requisitioned to consider these resolutions;

(v)Capricornia made a number of other submissions in relation to other proposed approved purposes.

(o)On 24 February 2005, Mackay’s solicitors sent an email to ASIC explaining that since the Application was lodged with ASIC further information had been published relating to the financial performance of Capricornia, and that in light of that information, Mackay intended to revise the original merger proposal by increasing the price proposed to be paid to Capricornia’s members in consideration for their shares in Capricornia, and that Mackay also intended to modify the merger proposal documents to better explain the benefits that Mackay believed Capricornia’s members would receive if the merger proposal was adopted.

(p)By letter dated 4 March 2005, from ASIC to Mackay’s solicitors, ASIC advised that the following purposes had been approved:

(i)To communicate material and other information to the members of Capricornia about the content (and consequences for them) of a proposal to merge Capricornia with Mackay (paragraph (a) of Annexure (“A) (the “first purpose”);

(ii)To communicate material and other information to the members of Capricornia to assist them to consider and understand the merger proposal (paragraph (b) of Annexure “A”) (the “second purpose”);  and

(iii)To communicate material and other information to the members of Capricornia to assist or facilitate convening a meeting of members to consider, and if thought proper, pass resolutions changing the composition of Capricornia’s Board so that a majority of its directors (at least) were prepared to give effect to the directions of the members (as set out in any resolution passed by members) with regard to the proposal, and the appointment of proxies to vote at such a meeting on behalf of members (subparagraph (c)(ii) of the Annexure “A”) (the “fourth purpose”).

(q)ASIC declined to approve the purpose set out in subparagraph (c)(i) of the Annexure “A”, i.e.  to communicate material and other information to the members of Capricornia to assist or facilitate convening a meeting of members to consider, and if thought proper, pass resolutions giving directions to Capricornia’s Board in relation to the merger proposal, and the appointment of proxies to vote at such a meeting on behalf of members.

(r)By a letter of 4 March 2005, Capricornia was informed by ASIC that it had approved the purposes identified as (a), (b) and (c)(ii).  (“The first decision”.)

(s)Mackay filed an Application for review of the decision to refuse the purpose set out in paragraph (c)(i) of annexure “A” (“the third purpose”), on 10 March 2005.  (Q2005/154)

(t)Capricornia filed an Application for review of the decision of ASIC to approve the other three purposes (the first, second and fourth purposes), on 1 April 2005.  (Q2005/196)

(u)On 27 April 2005, Mackay’s solicitors made a further Application to ASIC for approval of a fifth purpose.  (the second Application)

(v)The fifth purpose was to communicate (in writing, by telephone or by public forum) with the members of Capricornia for the sole purpose of providing material and other information to them to assist or facilitate convening a meeting of members of Capricornia to consider, and if thought proper pass resolutions:

“amending Capricornia’s Constitution so as to expressly confer upon its members the right, power or entitlement to give directions or recommendations to Capricornia’s Board (by the passing of an ordinary resolution at a general meeting) with respect to the proposal to merge Capricornia and MPBS, including directions and recommendation regarding:

(i)making Applications to the Court required by s.411 of the Act and the preparation of all Explanatory Memoranda and notices and engaging appropriate experts to prepare any necessary reports required for a scheme meeting for the purpose of considering a scheme of arrangement for the merger of Capricornia and MPBS;

(ii)a date for the holding of the scheme meeting to consider a scheme of arrangement for the merger of Capricornia and MPBS (subject to the terms of any order made by the Court pursuant to any Application made under s.411 of the Act);  and

(iii)seeking the cooperation, support and assistance of MPBS for the purposes described above, or for the purposes of attending to any other step required or convenient for advancing the proposal for merger.”

(w)By a letter of 12 May 2005, ASIC sought Capricornia’s submissions on the fifth purpose raised in the application of Mackay.

(x)Capricornia sought from ASIC a copy of the submissions made on behalf of Mackay in support of its application and a copy of ASIC’s reasons for its proposed approval. ASIC did not supply any material in response to the requests from Capricornia.

(y)By a letter of 30 May 2005 Capricornia provided submissions which demonstrated why the approval sought should not be given.

(z)By a letter dated 20 June 2005, ASIC informed Capricornia that it had approved the fifth purpose.  (“the second decision”.)

(aa)By letter dated 20^th of June 2005, ASIC notified Mackay’s solicitors of the approval of the fifth purpose.  ASIC noted that convening of a meeting of Capricornia’s members must be in accordance with the relevant provisions of Part 2G.3 of the Act and Capricornia’s Constitution.

(bb)By Application filed on 19 July 2005, Capricornia sought a review in the Tribunal of ASIC’s decision to approve the fifth purpose.  (Q2005/465)

Legislation relating to Inspection of Registers

15. Chapter 2C of the Corporations Act 2001 contains provisions dealing with the registers which are to be kept by companies.  Section 173 deals with inspection of the registers required to be held by companies.  The section contains the following subsections (among others):

“173     Right to inspect and get copies

Right to inspect

(1)A company or registered scheme must allow anyone to inspect a register kept under this Chapter.  If the register is not kept on a computer, the person inspects the register itself.  If the register is kept on a computer, the person inspects a hard copy of the information on the register.

Note:Other provisions that are relevant to the inspection of registers are:

section 1300 (place and times for inspection)

section 1301 (the location of documents that are kept on computers)

section 1306 (form and evidentiary value).

(1A)The requirement in subsection (1) to allow the person to inspect a hard copy of the information on the register does not apply in relation to a register that is kept on a computer if the person and the company or the responsible entity agree that the person can access the information by computer

Note:    A defendant bears an evidential burden in relation to the matter in subsection (1A), see subsection 13.3(3) of the Criminal Code.

Inspection fees

(2)A member of a company or a registered scheme, a registered option holder or a registered debenture holder may inspect a register kept under this Chapter without charge.  Other people may inspect the register only on payment of any fee (up to the prescribed amount) required by the company or scheme.

Right to get copies

(3)The company or scheme must give a person a copy of the register (or a part of the register) within 7 days if the person:

(a)asks for the copy;  and

(b)pays any fee (up to the prescribed amount) required by the company or scheme.

ASIC may allow a longer period to comply with the request.  If the register is kept on a computer and the person asks for the data on floppy disk, the company or scheme must give the data to the person on floppy disk.  The data must be readable but the floppy disk need not be formatted for the person’s preferred operating system.

(4)A person has the same rights to inspect, and obtain copies of, the documents kept under subsection 170(3) as the person has in respect of the register of option holders itself.”

16. The Corporations Regulations make special provision for a company permitted to use the expression, building society, credit society or credit union under s.66 of the Banking Act 1959.  Capricornia comes within that provision.  Regulation 12.6.06 has the effect of modifying s.173 so far as it applies to credit unions by inserting sub-sections (1A), (1B), (3A) and (3B).  Subsections (3A) and (3B) provide as follows:

“(3A) However, a body corporate mentioned in regulation 12.8.02 of the Corporations Regulations may, before giving a person a copy of the part of the register for members of the body corporate who hold member shares, require the person to agree in writing with the body that the person will only:

(a)give the original copy, or a copy of that original, to a person who is, or to persons who are, specified in the agreement;  or

(b)use information obtained from that part of the register for a purpose that is, or purposes that are, specified in the agreement.

(3B)Also, the body corporate may refuse to give a person a copy of the part of the register for members of the body who hold member shares if the body is not satisfied that:

(a)the person is a member of the body who intends to call a meeting of members, or of particular members, of the body;  or

(b)the person proposes to use information obtained from that part of the register for a purpose that is approved in writing by ASIC:

(i)on its own initiative;  or

(ii)on the written application of the person or of another person.”

17.     Section 177 imposes some limits on the use to which the information obtained from members’ registers may be put.

“177     Use of information on registers

(1)       A person must not:

(a)use information about a person obtained from a register kept under this Chapter to contact or send material to the person;  or

(b)disclose information of that kind knowing that the information is likely to be used to contact or send material to the person.

Note:An example of using information to send material to a person is putting a person’s name and address on a mailing list for advertising material.

(1A)Subsection (1) does not apply if the use or disclosure of the information is:

(a)relevant to the holding of the interests recorded in the register or the exercise of the rights attaching to them;  or

(b)approved by the company or scheme.

Note:A defendant bears an evidential burden in relation to the matter in subsection (1A), see subsection 13.3(3) of the Criminal Code

(1B)     An offence based on subsection (1) is an offence of strict liability.

Note:    For strict liability, see section 6.1 of the Criminal Code.

(2)A person who contravenes subsection (1) is liable to compensate anyone else who suffers loss or damage because of the contravention.”

The Issue

18.     The sole issue for determination by the Tribunal is whether the correct or preferable decision is to approve or not approve the first, second, third, fourth and fifth purpose, pursuant to subparagraph 173(3B)(b)(ii) of the Act.

Consideration of the Issue

19.     ASIC’s role is to balance the importance of protecting the privacy of members of a mutual and the risk of the release of commercially sensitive information on the members’ register, against the generally accepted principle, enshrined in section 173 of the Act, that it is conducive to the good governance of a company that non-members should be able to communicate with members of a company regarding the affairs of the company.

20.     There has been no suggestion that Mackay is attempting to obtain a copy of the members’ register of Capricornia for any improper or hidden motive.  Mackay wishes to “merge” with Capricornia.  There is no doubt that the effect of such a proposed “merger” would in reality be a takeover.  Capricornia would cease to exist in its current form and its members would either be bought out or become shareholders in Mackay.

21.     Mackay wish to put a proposal to the members of Capricornia which ultimately the members will either accept or reject.  Mackay wishes to get to a position where it can mount a takeover.  At this stage Mackay is in a pre-takeover situation.

22.     This review relates to the purpose for which Mackay seeks access to the members’ register.  Consequently, I do not consider that it is necessary to attempt a qualitative analysis of the proposed takeover offer, or the method by which a takeover would proceed.  These will be matters for the members to decide for themselves.

23.     I will assume, for the purposes of this review, that if the matter gets as far as the takeover stage, Mackay will comply with the legislative requirements relating to takeovers, or demutualisations.  The meeting of members of Capricornia, as proposed by Mackay, would not effect a demutualisation of Capricornia.

24.     The submissions made on behalf of Capricornia and CUSCAL concentrate on concerns relating to the privacy of members and commercial sensitivity.   Capricornia also contends that Mackay is attempting a takeover and at the same time attempting to circumvent the legislative requirements relating to takeovers.

25.     CUSCAL has concerns for some of its members who supply financial services to members of police forces and the armed services.  I regard any considerations relating to the privacy of members of a police force or armed services as extremely important.  However, those considerations have no bearing on this case.

26.     As far as commercial sensitivity is concerned, there is no evidence before the Tribunal that Mackay and Capricornia compete in the same market.  Capricornia is based in Rockhampton and Mackay is based in Mackay.

27.     I do not accept that Mackay is attempting to circumvent the provisions relating to takeovers, or demutualisations.  Mackay will have to comply with the legislative requirements to effect those aims, if the matter gets that far.  The requirements of the legislation which will follow in time will filter the takeover material.

28. The fact of the matter is that subsection 173(3B)(b)(ii) of the Act allows for the procedure which has taken place. It allows for members of a credit union to be fully informed about the nature of a proposal being made to them. It protects members of a credit union from being misinformed, being subjected to possibly deceptive conduct or being kept in the dark.

29.     I intend to take a “broad brush” approach and take the following matters into account:

(a)The purposes proposed by Mackay are those contemplated by subsection 173(3B)(b)(ii) of the Act.

(b)Mackay’s purpose is bona fide.  It is not a coloured attempt to obtain commercially sensitive information.

(c)Mackay’s proposed purposes appear to be consistent with legislative requirements.

(d)There is an absence of improper conduct.

(e)I assume that if as a result of Mackay’s proposals a new Capricornia board is constituted, the members of that new board would comply with all of the requirements of the legislation relating to their obligations and duties that they are to perform.

(f)A purpose that relates to allowing the takeover process to be started should be allowed.

(g)There is ample opportunity for those who oppose the takeover to put their point of view to the members.

(h)The material put to members should not be one-sided.

(i)Neither the Tribunal, nor ASIC, should attempt a qualitative analysis of the merits of the takeover proposal.  That will be the ultimate question for the members themselves.

(j)Section 173(3B) provides that even if ASIC approves the purpose, if the target company is not satisfied that the information is, in fact, going to be used for that purpose, it can withhold a disclosure.

(k)Credit unions are not exempt from takeover applications.  The reality is that they are a permissible commercial target for any entity.

Consideration of the Purposes

30.     The first purpose is to communicate with the members of Capricornia for the purpose of providing information and material about a proposal to merge Capricornia with Mackay.  This is a legitimate purpose and should be approved.

31.     The second purpose is to contact members of Capricornia for the purpose of assisting them to consider and understand the proposal.  This is a legitimate purpose and should be approved.

32.     The third purpose is to provide materials to the members of Capricornia to assist or facilitate convening a meeting of members to pass resolutions giving directions to Capricornia’s Board in relation to the merger proposal.  This does not appear to be a legitimate purpose because it cannot legitimately be pursued.  The members of Capricornia have no power in general meeting to give the directors instructions as to the manner in which they exercise their powers as directors.  Directions to the directors of Capricornia which relate to Capricornia dealing with the merger proposal would amount to directions which relate to the affairs of the company which are vested in the directors and not in the company in general meeting.  This purpose should not be approved.

33.     The fourth purpose is to effect a change in the composition of Capricornia’s board so that a majority of its directors are prepared to give effect to the directions of the members with regard to the proposal.  That is, to encourage the members of Capricornia to exercise their rights as members to call and vote at a general meeting, to vote onto the Board of Directors those directors who indicate a willingness to vote in favour of the merger proposal.  The purpose of encouraging members to exercise their voting power relates to an interest or rights of members in relation to their capacity as members.  This purpose should be approved.

34.     The fifth purpose is to provide material and information to the members of Capricornia to facilitate convening a meeting of members to pass resolutions amending Capricornia’s Constitution to confer upon the members the right, power or entitlement to give direction or recommendations to Capricornia’s Board.  Such a purpose is one which closely relates to the rights or interests of the members in their capacity as members.  Whether or not the proposed amendment is appropriate is a matter for the members, not ASIC nor the Tribunal.  This purpose should be approved.

35.     Consequently, the Tribunal affirms the decisions of ASIC in all three applications for review.

I certify that the 35 preceding paragraphs are a true copy of the reasons for the decision herein of Deputy President Don Muller

Signed:         .....................................................................................
           R. Link, Associate

Date/s of Hearing  19 September 2005                  
Date of Decision  29 November 2005
Counsel for Mackay Perm        Mr. P. Bickford
Solicitor for Mackay Perm         McCullough Robertson
Counsel for Capricornia            Mr. G. Martin SC
Solicitor for Capricornia            Gilshenan and Luton
Counsel for the Respondent     Mr. R. Derrington SC
Solicitor for the Respondent     Mr. J. Connor
Counsel for Party Joined          Ms. E. Collins
Solicitor for Party Joined          Kemp Strang